Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO: Standing Committee on City Services and Budgets
FROM: General Manager of Engineering Services, General Manager of Community Services and General Manager of Corporate Services
SUBJECT: BOD/TSS/Flow Charges for Industrial Users
 

RECOMMENDATION

COUNCIL POLICY

On April 25, 1997, Council adopted the recommendations of the Standing Committee on City Services and Budget to endorse the BOD/TSS pricing strategy proposed by the GVRD Board subject to the Charter amendments necessary for the Sewer Utility and the following four points:

1. That each municipality maintain control of the billing of the BOD/TSS pricing.

2. That full implementation of the BOD/TSS pricing be complete by 2001, with municipalities having the option to phase in the charges.

3. That the BOD/TSS capacity charge evolve into pricing options that provide off-peak incentives and real time pricing.

4. That the GVRD and municipalities ensure that municipal and regional sewerage and drainage costs are clearly delineated, there be no double-billing of industry, and that the charges reflect the user-pay philosophy.

At the same Council meeting, Council also adopted the recommendation that the Citizen’s Advisory Group on Property Taxation be directed to consider the issue of BOD/TSS pricing as it relates to implementation, billing, mitigation and coordination with the Sewer Utility and to report back with options following the Charter amendments for the Sewer Utility.

In May 1998, Council passed the motion “THAT Council proceed with the implementation of BOD/TSS charges no later than 1999, and at that time, blend the Class 5 (light industrial) and Class 6 (business) tax rates to a single rate.”

In May 1999, Council approved a delay in blending Class 5 and Class 6 tax rates. One of the reasons for the delay was that the Class 5 taxable properties will be the largest beneficiaries of rate blending and this group is dominated by a few unique properties that are also permitted industries which will face potentially large cost increases when Council implements the BOD/TSS charges. Delaying the rate blending will allow Council to offset these cost increases with the taxation benefit.

PURPOSE

The purpose of this report is to recommend a rate structure and implementation schedule for setting BOD/TSS/Flow charges for permitted industrial sewer users.

BACKGROUND

In 1997, the GVS&DD Administration Board approved implementation of an industrial pricing strategy for BOD, TSS and flow. The BOD/TSS/Flow charges are a special pricing scheme designed to assess industry for the costs of the GVS&DD treatment facilities which they use based on the quality and quantity of their effluent. The charges are designed to provide industry with incentives to reduce or pre-treat the pollutants which they discharge.

A major benefit in any reduction in the amount of contaminants going to the Iona Island Sewage Treatment plant (90% of Vancouver sanitary/combined sewers discharge to this plant) will result in the plant being able to maintain it’s operational efficiency and meet the requirements of the Provincial discharge permit without the need for major capital upgrading. The cost associated for implementing secondary treatment at this plant is in the order of $400 million.

The GVRD’s BOD/TSS pricing strategy was developed in 1996 and 1997 through a consultative process that included a Technical Working Group (TWG) made up of a number of the larger permitted industry groups and staffs from the GVRD and the City. Numerous TWG meetings were held and updates were provided to the GVS&DD Sewage and Drainage Committee, the Board and all permittees over an approximately 15 month period. The final BOD/TSS pricing strategy report was sent to all permittees prior to the Board’s approval for implementing the fee structure. City of Vancouver permittees were also provided with an opportunity to address Council when this issue was brought forward in a report on April 25, 1997. Since the Board approval, permittees have also had the opportunity to attend information forums on the pricing strategy.

There are currently sixty-three permitted industries in the City of Vancouver that will be
affected by the BOD/TSS/Flow charges. An industry becomes permitted when it discharges more than 300 cubic metres of wastewater over a thirty day period. In addition to the charges proposed in this report, under the Regional Sewer Use By-Law, the City is required to levy an annual permit administration fee of $1,400.

DISCUSSION

While the BOD/TSS/Flow charges were approved in principle by the member municipalities and the Board, specific implementation details and schedules have been left with individual municipalities. Today around the region, most of the municipalities have implemented some BOD/TSS/Flow charges. However, only a few have implemented the charges exactly the way GVRD proposed.

In 1997 when Council approved in principle support for the GVRD fee proposal they passed a motion outlining specific issues to be addressed in setting the charges. These included ensuring that municipal and regional sewerage and drainage costs are clearly delineated, that there is no double-billing of industry, and that the charges reflect the user-pay philosophy. In reviewing the GVRD’s proposed implementation of BOD/TSS/Flow charges for Vancouver in the context of these guiding principles, we have significant concern with the GVRD pricing model. We therefore recommend that specific BOD/TSS/Flow charges unique to Vancouver be used instead.

Specifically, there are two major concerns about implementation of the GVRD pricing model in Vancouver. First, the costing method structured in the GVRD pricing model does not reflect the fact that Vancouver has a combined sewerage system. The Iona sewage treatment plant servicing Vancouver is the only one in the region designed to convey and treat the storm water inherent with a combined sewer system. The GVRD’s pricing model incorrectly assumes that all of their treatment plant costs are fully attributal to sanitary users. To appropriately reflect the user pay principle the fees should be adjusted to exclude the significant costs attibutable to stormwater. These rate structuring fundamentals have been incorporated in the pricing formula proposed by City staff.

Secondly, in accordance with the GVS&DD Cost Allocation Agreement, Vancouver pays a substantial share of the capital costs for secondary treatment facilities in other parts of the region. These “Tier II” costs are attributed to Vancouver based on the average dry weather flow measured at the Iona Plant. The GVRD pricing model however, proposes these costs be attributed to Vancouver industries based on the capital costs for BOD/TSS and flow related to the other parts of the region. This is not consistent with their own Cost Allocation formula attributing these same costs to Vancouver. The pricing model recommended by City staff on the other hand, would pass these costs on to industry in the same manner in which they are charged to Vancouver.

IMPACTS ON INDUSTRIES

The proposed City of Vancouver fees structure would result in an annual charges of $1.73 million to the permitted industries (in comparison the annual charges under the GVRD fees structure total $3.24 million). The BOD/TSS/Flow charges will have a significant financial impact on several of the permitted industries. Appendix A shows these financial impacts.

To avoid double billing in applying these fees, industries would be given an allowance representing the amount they already pay in property tax towards these GVS&DD services. This is necessary as it is not equitable for these industries to pay the GVS&DD sanitary services twice: once in the BOD/TSS/Flow fees and then again in property tax.

To further address the equity issue and in accordance with City Council’s direction, staff recommend that the blending of Class 5 and Class 6 tax rates be implemented concurrently with the BOD/TSS/Flow charges. Blending the tax rates for these two classes has a significant beneficial impact on the permitted industries that are affected the most by the BOD/TSS/Flow charges. Staff feel that without blending the tax rates, implementation of BOD/TSS/Flow should be reconsidered.

The proposed Sewer Utility implementation will have a further impact on the permitted industries. However, these impacts will not be as significant as the BOD/TSS/Flow charges.

Staff also recommend that the BOD/TSS/Flow charges be implemented in two phrases with a half year charge for 2000 and a full year charge for 2001. This phase-in strategy would help lessen the initial impacts on the permitted industries. Full implementation of BOD/TSS/Flow charges would then occur in 2001 which would also be in accordance with the GVRD’s recommended timeline.

Appendix B shows the financial impacts on each of the permitted industries if BOD/TSS/Flow charges are to be implemented with blending of the Class 5 and Class 6 tax rates in 2000. The financial impacts on permitted industries under this scenario ranges from significantly more costs, to minimal effects, to some actually paying less than the amount now paid in general taxes. Since the pricing strategy report was approved by the Board, mock invoices showing what the BOD/TSS/Flow charges using the GVRD pricing method would be if implemented by the City have been sent to each permittee annually. Staff have also met with each permittee on an individual basis to go over how the charges are calculated and to answer any questions which they may have. Staff therefore believe that an adequate consultation and notification process has occurred with the impacted businesses.

CONCLUSION

The recommendations of implementing the BOD/TSS/Flow charges using the rate structure formulated by the City staff, coordinating this implementation concurrently with the blending of Class 5 and Class 6 tax rates, phasing in a half-year charges in 2000 and implementing full year charges in 2001 put forward in this report allow Council to address several equity related issues in a comprehensive matter. Staff believe that this course of actions is in accordance with Council’s commitment to a fair and equitable local government practice.

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APPENDICES A AND B ON FILE IN THE CITY CLERK'S OFFICE

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